Tips to Start That Financial Plan Marathon

Creating a long-term savings or retirement plan requires discipline and an understanding that it’s a marathon, not a sprint. The strategic process requires a unique roadmap for each person’s situation. Here are some things to consider before starting your financial plan:    

BUDGET

Before committing to putting away money for savings, you need to understand the needs and limitations of your budget. Proper budgeting helps individuals understand their cash flow and could be the difference between living comfortably on your savings versus outliving your savings. A good understanding of budget and cash flow lays the groundwork to help you make better financial decisions moving forward.  

PAY DOWN DEBT

Pay down consumer debt first. A long-term savings plan can’t be implemented until there is extra cash flow, and consumer debt is a major factor in people’s inability to save. Eliminating high-interest debt is the first priority when starting a savings plan because it can have worse effects on your long-term savings plans than inflation. 

For example, if a person can save $500 per month, I’d recommend at least 75-100% going to pay off the high-interest debt with any remainder going toward a cash reserve before trying to invest.  

ESTABLISH A CASH RESERVE

Cash is truly king. Every long-term saver needs to establish a healthy cash reserve account.  A healthy reserve allows individuals to pay cash instead of finance, promotes long-term investing by not tapping into investments to cover expenses, and allows savers to take advantage of buying opportunities when they present themselves during low markets.  

INVEST TO BEAT INFLATION

Excess cash above the reserve amount needs to be invested in order for your savings to beat inflation. Choose investments that have a proven track record of performance that outpaces average inflation, which is a little over 3% year over year. The level of risk a person is willing to assume on their investments will determine how much their unique mix will outpace inflation. If you don’t beat inflation, you are losing money (purchasing power) every year even if your balance in a savings doesn’t drop a penny.

MAKE SAVING EASY

The less we have to do to save, the easier it will be to achieve long-term savings goals. Payroll deductions or automatic drafts are great tools to help you stay on track, as well as help you budget in saving. Also, what helps many save faster is working for an employer that offers a match on your savings, bonuses, or other financial incentives. Use those monies to help you reach your goals faster.     

FOCUS ON YOUR GOALS

No matter where your savings journey begins, establishing clear attainable short- and long-term goals can help you stay on track. As investors, we can’t control the markets but we can control how we react to them. Being goal-focused can help take the emotion out of investing and allows savers to celebrate the ups and take advantage of the downs.      

Kevin Chancellor is a licensed financial advisor who specializes in helping individuals, families, and business owners in the areas of retirement planning, tax savings, estate considerations, and education savings. He has served as board chair for the Greater Palm Bay Chamber of Commerce and works with various charities throughout the county. 

Kevin Chancellor
www.blacklabfs.com
kevin@blacklabfs.com